Hong Kong shares inched higher on Tuesday, led by defensive issues that have outperformed the market as spooked investors sought safer bets in lingering weakness that has shaved 18% off the Hang Seng Index in the year to date.
Mainland telecommunications counters rose, led by China Mobile Ltd and China Unicom (Hong Kong), as investors look to position themselves in low risk names that offer higher returns in a weak market.
"China telcos are a popular trade these days. They are low beta, stable and offer better returns than other defensives such as utilities," said Guotai Junan Securities Chief Investment Strategist Larry Jiang in Hong Kong.
The Hang Seng Index was up 0.1% at 18,936.83 at the midday trading break, boosted by Unicom and HSBC Holdings, Europe's largest bank and the largest index component.
HSBC, up 0.4%, has declined more than 18% this quarter to date amid the lingering euro zone crisis. It reached its lowest since July 2009 last week, but has stayed below the HK$65 level that is seen as near-term resistance.
China Unicom, the mainland's second-largest mobile operators, gained more than 3% after reporting a 9.3% increase in its 3G subscriber base in August from July.
Credit Suisse analysts said in a report that this improvement came on the back of an improved supply of smartphones costing below 1,000 yuan ($157) into the mainland market.
But its overall pace of net additions disappointed, with Credit Suisse believing Unicom must expand its top line aggressively to make its operations more competitive with larger rival, China Mobile.
Unicom, among the top performers on the Hang Seng Index with gains of more than 55% in 2011 to date, is trading at 31 times its forward 12-month earnings, according to Thomson Reuters Starmine.
SHANGHAI GAINS LIMITED BY PROPERTY LOSSES
The Shanghai Composite Index edged up 0.41% to 2,447.8 at midday in lacklustre A-share turnover, as gains in beaten down financials outweighed losses in underperforming property plays.
Bank of China, which lost more than 1% on Monday and is down almost 9% in the year to date, was among the top boosts, gaining 0.7%.
Shenzhen-listed China Vanke Co, the country's largest property developer, declined almost 1%, while rival, Poly Real Estate Group Co lost 1.6% taking the property sub-index down 0.3%.
Vanke lost more than 3% on Monday, plunging to its most oversold level since early June, after reporting slowing sales for August. It said it expected slowing sales growth to affect its margins this year as government efforts to cool the domestic market kicked into gear.
This was corroborated by official data on Monday showing China's housing inflation marginally eased in August as home prices in major cities remained flat for a second-straight month.
The Shanghai property index is down 14% in the quarter to date, underperforming the Shanghai Composite's 12% loss.
